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What is life insurance and how does it work?

11 minutes

No one wants to think about the worst happening, especially if you are about to move into your own home for the first time, or thinking about starting a family.

While starting these new and exciting adventures, it’s also time to think about how to protect your loved ones should anything happen to you. One of the best ways you can do that is with life insurance.

What is life insurance and how does it work?

Life insurance provides financial support for your partner and any children, in the event of death and some providers will cover being diagnosed with a terminal illness too. Dealing with the death of a loved one is hard enough without adding money worries to the situation.

Taking out life insurance means that, should the worst happen, your loved ones will have one less thing to think about. Life insurance pays out a cash amount that can help with everything, whether that's to help pay off the mortgage, support children going to university, or simply making sure they have enough to live on. The amount of cover you have and how long you have it for is up to you, subject to certain limits.

Do I need life insurance for a mortgage?

Taking out a mortgage may be the first time you are asked to consider life insurance – this is because you are committing to borrowing and repaying a significant amount of money.

While you're under no obligation to take out life insurance when taking out a mortgage, there are many advantages. Most importantly, it can help your partner to continue repaying the mortgage.

What does LV= life insurance cover?

Life insurance covers:

  • If you pass away during the length of your policy. 
  • Terminal illnesses which are included in the cover.

Life insurance doesn’t cover:

  • If you take your own life within the first year if the policy.
  • If the life expectancy is more than 12 months, terminal illness cover will not be paid.
  • Illness or disability. 

You can also add our Critical Illness cover and Income Protection, if you wish.

Critical Illness pays out a lump sum if you are diagnosed with one of 38 conditions, including a heart attack, cancer, Parkinson’s disease and Alzheimer’s disease. There’s also further conditions where the lower of 25% of your total amount of cover up to £30,000 will be paid and nine enhanced conditions where you’ll receive extra.

Income Protection, on the other hand, is to be used in the event of an accident or sickness that means you are off work for a significant period of time. Income Protection pays a percentage of your income each month, over a set period of time.

Different types of life insurance

There are several types of life insurance to choose between. The one you pick will be dependent on your personal circumstances and what your provider offers.

There are typically two main types, which are:

1. Whole of life insurance

There is no end date for the policy, it will continue for the duration of your life (as long as you make the payments) and will pay out whenever you die. LV= does not offer these policies.

2. Term life insurance

Term life insurance for a specific amount of time. When this ends you will no longer be covered. 

LV= life insurance policies are all for a specific term, these include: 

Level cover life insurance

In the event of your death, level cover will pay an amount at claim which will always be the same - whether the claim is made in the first year, or during the last year of the policy term. This can be used to help pay off the mortgage or be left to your family.

The cover amount (which you can choose) and premiums are fixed for the term, which is also up to you and can be anywhere from five to 50 years. It gives you the certainty of knowing what your payments are and what the amount at claim will be, but does mean that it won't benefit from inflation.

Decreasing cover life insurance

Each year the money you owe on your mortgage and other loans will reduce and this cover reflects that by reducing the amount you are covered for each year too. You choose the amount, the premium won’t change and it can be from five to 50 years.

This is often cheaper than level cover life insurance. If you plan to change how much you pay on your mortgage or have an interest-only one, this may not be the best option. 

Then, you can choose between:

Single life cover

You choose whether to take life insurance out on your own or with your significant other, or you can both take out separate policies.

Joint life cover

You can take out a policy together, which can be cheaper. Once one claim has been made and paid out, the policy will come to an end and the other person will no longer be covered.  

How much is life insurance?

LV= life insurance starts from as little as £5 a month but this can vary depending on the provider. The price you pay will be dependent on several factors though, including:

  • Your age
  • Occupation
  • Lifestyle – such as whether you smoke or not
  • Previous and existing health conditions
  • The length of the insurance
  • The amount of cover required

When should you get life insurance?

You can take out life insurance with LV= at any time between the ages of 17 and 84.

You may be likely to consider it when taking out a mortgage, to protect this large investment and ensure your family can continue to repay it, should the worst happen.

It’s not only those with a mortgage that should consider life insurance. If you are renting, you’ll still leave your partner or family without an income to pay rent and bills.

If you already have a family – or are considering starting one – you may also be thinking about life insurance. This way you may be able to take care of your family financially, should you not be around to support them. 

 

Frequently asked questions

 

How much life insurance do I need?
Is life insurance worth it?
What happens to life insurance when the mortgage is paid?
How much is life insurance a month?
What is the length of time I can have life insurance for?